Over the years, I had encountered many clients who had purchased regular premium ILPs. Just the last 7 days alone, I had met 3 and they had something in common during the meeting. All of them were surprised when I revealed the charges to them.I was equally surprised when I get to know that one of them is a regular investor with Fundsupermart. 2 purchased the Prulink from Prudential and 1 purchased the Maxlink from GE. It remains a mystery to me as of how the advisers managed to sell the policy without explaining the charges involved.
I like to share with you what are the things to look out for in a regular premium ILP.
1) Premium Allocation
This is the most crucial of all!!! This section forms the largest bulk of the charges.
It will specify how much of your yearly premium will be allocated for investment in the first few years. (Other charges not deducted yet)
Every company have different allocation rate. Eg:
Prudential Prulink - 15% / 50% / 50% for 1st 3 years
GE Maxlink - 10% / 60% / 90% for 1st 3 years
NTUC Ideal - 85% / 85% / 85% for 1st 3 years
Taking Prulink as an illustration, 185% of 1 year premium are taken away as charges from the first 3 years of premium paid. If premium is $2,400/yr, it means 185% x $2,400 = $4,440 are not invested at all!!! Most of the $4,440 are used to pay the agent, manager and company.
Some big fat lies and reasons that some agents will come out with are:
* "These are used to pay your insurance charges"
* "All policies have their charges, these are what the company charges for the policy administration, overheads, office staffs, etc"
* "Unlike an Endowment policy, part of your money are already invested from day 1. In an Endowment plan, there are no cash value for the 1st 2 years. Don't you think the ILP charges are lower?"
* They will say anything except to say that its their commission. They will try to emphasize on the potential returns and rush through the charges. Some agents may not even talk about it.
2. Insurance Charges
Some people really thought that the low premium allocation are really because of insurance charges. Those innocent clients will have fell into the agent's lie.
The insurance charge found in ILP are normally in the form of a YRT(Yearly Renewable Term).
The YRT premium table can normally be found in the insurance policy itself. The premium will increase with age but significant increment will be at around 40yrs old onwards.
Eg,
$0.60/yr per $1,000 sum assured at age 25
$4.98/yr per $1,000 sum assured at age 45
$15.11/yr per $1,00o sum assured at age 65
If you are 41 yrs old and desired a $100,000 sum assured, it means that you need to pay $498/yr as insurance expenses.
3. Policy Fee
Policy fee is meant for the maintenance of the policy charged by the insurance company. It can be $5/mth or $50/yr which varies for different companies.
4. Funds Bid-Offer Spread
This is the sales charge of the investment fund. The usual sales charge is 5% with exception from NTUC Income at 3.5% or AXA Inspired plan with as low as 1% sales charge.
Eg. $2,400 premium will have a 5% x $2,400 = $120 sales charge (Bid-Offer Spread)
There will be other charges on fund level like management fee, trustee fee, etc which I shall not emphasize here.
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Now. I'm going to illustrate an example on a 45 yo female investing $2,400/yr or $200/mth with $100,000 insurance protection. How much does she really invest over the initial 3 years.
1. Premium not allocated for investment - 185% x $2,400 = $4,400
2. Insurance Charges
at 45yo - $4.98 x 100 = $498
at 46yo - $5.51 x 100 = $551
at 47yo - $5.99 x 100 = $599
Total over 3 years = $1,648
3. Policy fee - $5/mth x 36 mths = $180
4. Bid-offer spread - 5% x $2,400 = $120 x 3 = $360
Total investments = $2,400 x 3 = $7,200
Total Charges = $4,400 + $1,648 + $180 + $360 = $6,628
Actual money invested = $572
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I advocate separating investment and insurance so that we can be clear on the amount we expense for protection and the amount we invest for retirement. I am not saying that ILPs should not exist but I think MAS should set a cap as of how much the insurance company can charge the consumers. Agents should be fairly compensated but it should not be excessive at the expense of the policyholders.
34 comments:
so you think traditional life don't incur charges at all? why these plans normally do not have surrender value within 2 year?
by the way, do you talk about investment when you are selling traditional life policy?
there are 2 types of ILP (i hope you already know), one geared towards investment, one for protection.
ILP that geared towards protection (those you mentioned) usually got high front end charges (similar to tradition life). The charges are more transparent than trad life hence you might assume there's lot.
Trad life invest in life fund, ILP you choose your own. Trad got level insurance charges but ILP is like renewable term, usually quite cheap at young age and gets steep when old.
Ideal plan's min death benefit is only 1.25 x total amt invested, 2 free fund switches per yr hence you can't use it to compare.
other ILP that geared towards investment have >100% allocation, why didn't you mention that?
I hope working as IFA don't teaches you to condemn other companies' plan. if you really understand how such ILP works, you might think otherwise. The fear is that you don't understand well and say the bad things about it.
Adrain,
Thank you very much for the detailed information. There are agents who advised clients to invest regular premium of $1,000 per month instead of the initial single premium of the min.$5,000 and then random top up of $1,000 per month to cut down on the charges.
Poor rich clients unknowingly invest without any knowledge of the charges and agents laughing all the way to the bank.
I am not condemning regular premium ILPs. I want to bring across the high charges that some companies charged without the knowledge of the client.
I feel that the charge is unfair and excessive compared to regular RSPs via unit trust and buy a separate Term Insurance. By illustrating a true example of one company doesn't mean I am condemning that company.
There are indeed some advisers, esp those newer ones taught by their managers to tell the wrong things and these adviser don't even know about it.
I am aware that there are some plans such as from GE, AXA or NTUC Income that have 100% allocation towards investment. "But" are these plans marketed widely?
If you are in the industry and actively reviewing for your clients, what percentage of plans do you see those with 100% allocation?
I do not want to start a debate on ILPs vs Traditional Policies. I feel that both are very different products and difficult to be compared directly.
Hi Tanbl,
You are right to say that there are advisers advising clients to invest the minimum amount and request a regular ad-hoc top-up with the insurance companies on monthly basis.
I once had a heated argument with a highly experienced and well known consultant in my company about his client who put in $3,000/mth into a regular premium ILP and not do the above mentioned way.
His argument is that Endowment also have their charges and Consultants well deserved all the commission earned if he managed to convince client to save via ILP.
In my opinion, its not right, unless client know about his options and he willingly want to proceed with the high cost.
leothu must be an agent. he is concerned that other agents especailly tied agents are condemned i n the process. There are unscrupulous agents as well as idiotic customers, that is why this sort of rubbish continues to happen.
As the saying goes it takes 2 party to complete the deal.
but wait, before you think that the customer is the willing party. No, it is idiotic party that gets conned by a scheming and unethical agent. There are plenty of these agents and at least 90% of the agents in Singapore belong to these unethical group, sincerely unethical or wilful unethical and plenty of them in NTUC and Pru.
Hi Adrian,
Thanks for posting my earlier comment on Mr Chan's case. I think the reason you're not able to do what Keith did is because you don't have a car. :-)
You see, success breeds more success. Besides a symbol of success, car is a necessity for a salesperson.
If you are not successful, how do you expect the successful people to entrust their financial future to you?
But well, it takes time, especially in this trade. But being untied is the first step in the right direction. Just my 2 cts worth for you and all the best to you in your endeavours.
Back to this ILP issure, being an IFA myself, it disgusts me whenever I hear remarks like "all products are good, it's only a matter of suitability'. I totally disagree with this. Those people who said this are trying to find justifications for selling inappropriate products so that they can feel better. Personally it's my very belief that ripping-off others is a crime. It's not just about money you know. It's people's life. It's about provisions for a widow, school fees for young children, money for hospital bills etc.
I have seen many clients who face the dilemma of whether to cut loss by terminating a regular ILP/ whole-life/ anticipated endowment plan (i.e Achiever, PAA, Prucash/ Life Plus, His/Hers Assurance and many more), or to continue throwing their good, hard-earned money into bad investments. These unethical agents are doing great great disservice to their clients, and are giving the industry a bad name.
Really, we do not need another agent who only knows how to sell Prucash at roadshows. I know of someone who is an expert in Prucash and top the chart.
I wish to stress that regular premium ILPs or anticipated endowments or other inferior wholelife/endowment plans are good if there are no other alternatives. But I know, and Adrian also knows, there are cheaper and better alternatives to these lousy products. But many of my colleagues are still selling lousy products though they know there are better products. For that I despise them.
You see, it's a chicken and egg issue. Good and important products that offer good value to clients often come with very very low commission. But those mentioned above pay really good commission. I think the key for an adviser is to balance between client's needs/interests and his/hers needs. But I am not suggesting that someone who earns a six figure income must be an unethical adviser, while the very poor ones must be very ethical.
On the contrary, the poor advisers may have to recommend bad products out of desperation. And we have too many poor insurance agents/FARs in Singapore, many of whom are part-timers.
Someone once said: when the adviser needs the commission more than the client needs the product, both the adviser and the client are in trouble.
Insurance companies have a role to play too. They should be more socially responsible in their product design and offering. They should focus on their core business i.e. risk management, instead of introducing those poor value saving plans to get cheap financing.
J.O
Mr. June 24, 12.46pm, I agree that customers are a bunch who do not know of their needs but always want this and that making themselves appear savvy. This is where they are open to unscrupulous insurance agents who will slaughter them. I can't stand agents who tell me that my customers want this or my customers like that. How do they know? Agents are cunning and liars. Whatever they sold is a result of some bullshitting and lies.
so is prucash also no good cause I bought this a few year back, thinking it is like a compulsory and disciplined savings plan with slightly better returns compared to putting the money in the bank, of course returns cannot compare with investments which are slightly riskier
please share views
thanks
Have heard about the ntuc top acheivers.? i heard that their supervisors were so scared to sign thier cases on revosave and one new product. Revosave is like prucash and these people sold so much that thier supervisors trembled to sign and they suspect malpractice and unethical misselling.
Hi Anonymous 12:21,
Anticipated Endowment like Prucash gives some liquidity to the policyholder as the yearly cashback can be withdrawn. Some people like this feature.
However this liquidity come at a cost. It gives lower returns compared to a no frill Endowment plan. Some people are willing to trade off this liquidity to the lower yield.
An 20 yrs anticipated endowment plan gives around 3.2% p.a whereas a normal endowment plan gives around 4.1%p.a. I reckon a 0.5% to 1% p.a difference in yield.
However, watch out for some agents who will give you the impression that the interest is 5% when the 5% is the % of the Sum Assured used to calculate the cashback.
I will not want to say such plan is inferior because human are very complex. For some people, no matter how you hard you try, they die die don't not want investments. When they choose to save via a traditional plan, they die die want the liquidity. If they know about their options and ready to accept the inferior choice, then I don't see anything wrong.
I am practical. If I don't sell to them, they will still buy from others.
Maybe all problems lie on the person or team who designed the insurance products. Are they making policies to rip the policyholders or are they there to help made themselves rich through selling these policies.
I see it this way. The person A who sells his product knows what the ingredients inside it but not the person B whom he engaged to sell. He sells to the customer and when something goes wrong, the customer definitely goes to person B. Person A is to be condemned but Person B must bear the responsibility to at least find out whether this product is fit for consumption.
Anonymous 12.21, why did you buy Prucash?It is a bluff people plan. If you put your money in the bank, although earning lower than Prucash, you are better off. How? you got cash you can access any time, no need to wait. You have no worry that you have to continue until finish the term, right? If you don't finish the term with Prucash, you know you will lose a lot. Putting in the bank, no problem. Another thing good about holding it in the bank instead of Prucash is if you look at it from today's dollar point of view in fact saving in the bank is better and it is worth more.
So don't let all these rubbish products in the market fool you, especailly Revosave from NTUC. Don't jump from the pan to the fire. You can check the background of these agents who sell this kind of products, they are all unethical and unscrupulous and consceinceless
people destined for 18 level hell.
They screw up people like you.
Hey Adrian,
Your statement "If they know about their options and ready to accept the inferior choice, then I don't see anything wrong.
I am practical. If I don't sell to them, they will still buy from others."
sounds very much like those rapists who justify their actions by saying that since the sexy pretty girl is asking for it, if I don't do it, somebody else will, so might as well I do it first.
This is the first step to the dark side, reconsider your practicality man. If Lim Bo Seng thought like that he would not have been our hero.
I can share another example than the rapist example Mr anonymous 11:33 gave. You may not agree with my example, but such things do happen.
Mr Tan has 3 fish,
1st fish is edible, not fresh
2nd fish is a just okay
3rd fish is very fresh and should taste the best.
Presume all the same price.
An shopper drop by and want to buy fish. Mr Tan told her that the 3rd fish is the best. Its the freshest and she will surely be happy.
But the shopper tole Mr Tan, "But I prefer the first one because it looks meatier and less scaly. I want the first one".
Mr Tan told the shopper, "But it won't taste good?" Why you want it?"
The shopper angrily tell Mr Tan, "I told you I like the fish to be meatier and less scaly! I don't care if its fresh. You want to sell or don't want to sell? I eat or you eat?"
Human are very complex and certain thoughts cannot be forced upon them. An adviser may not necessarily be unethical or unscrupulous just because an endowment plan is sold.
11.33am, you are right to censure Adrain for having such attittude. It is wrong and morally wrong, Adrain,
to think that way. What you can do is to to counsel the cleint and warn him or her of the unsuitability and danger of the product. If the client insists then you tell the client to look for someone else . Give reason to the client why you can't sell that becuase you are bound by the code of ethics of your profession. Client may appreciate your sincerity and honesty. If they cannot, too bad. Don't be part of the crime.....I know of many insurance agents, when asked why they sold those products, the standard answer is "customers want it , wah"
Mr. Adrain, the fish analogy is not appropriate. You are using a consumer product to compare with a financial product which has long term implication. Assuming the customer bought the wrong one the damage done is little but for a financial product it is long term and the damage can be huge.
Back to your analogy, the fish of different quality cannot be priced the same because the customer can be misled or the price can misrepresent.Same price means of same value and qaulity. This is unusual that the customer insists his choice compared to the experience of fishmonger who is more knowledgeable and competent. In this case the fishmonger will not cheat if he thinks of long term because the customer will find out sooner.
So Adrain, what Anonymous 11.33am
says is true. You must have strong ethics and not antics like the rest out there you want to follow.
I like to emphasize it is unfair to label an adviser as unethical, unscrupulous, immoral, deserve 18 level of hell, a rapist, etc just because he recommend an Endowment plan.
Sometimes, we can tell all the things about investing for better returns but there are clients insisting that they is not ready to take investment risk and die also don't want to invest, we cannot force them upon it.
I rather that they take up the next best alternative like a traditional savings plan than they do nothing at all.
It will be a crime if the client does not know his options and implication. If eventually, the client took up something not the best, but 2nd best, I don't think such a person is unethical.
I had argued about this before and the eventual verdict I will expect from all of you will be that I'm outright incompetent and lousy because I cannot convince a customer to not buy an endowment plan."
But my stand remains that it unfair to label all advisers as unethical, unscrupulous, immoral or deserve 18 level of hell just because an endowment plan is eventually taken up by the client when the client knows his options and chosen to do so.
Adrian,
What a mistake to start this debate. You will die in your blog from today onwards.
Adrain, you have opened up a can of worms and the worms are crawling all over the place. You are in trouble.
Hi Adrian, I am rather disappointed with your comments 'I am practical. If I don't sell to them, they will still buy from others.'
One of my colleagues said the same thing when he sold his clients regular ILP plan such as Zurich Vista. He said if he's not selling, the banks will.
This line of thinking is very dangerous. Other people do it doesn't mean it's a right thing to do. Integrity is your No 1 asset, never risk it!
But I do agree with you that some people just die die won't invest. For this group of people, a single premium endowment with a decent yield may serve them well. There are a few good single premium endowment plans that offer a yield of above 3% p.a over 5 years term with high guaranteed portion. There is also a good education endowment plan that offers over 4% p.a. yield. It also comes with a Payer Benefit rider. For many of you who invest, you may think it's unethical to recommend these plans. But there are many others who have no clue about personal planning. Their investment decision is simple: which bank pays the highest rate?
Therefore, I won't say it's a misselling as it's adding value to this group of clients, giving them higher yield compare to their existing asset allocation.
For readers who are not in the industry, please do not jump to the wrong conclusion that all whole life and endowment plans are bad. Please appreciate the fact that each individual's needs are different.
Having said that, I must say that all regular premium ILPs and anticipated endowments are lousy. Most endowment and whole life policies are inferior. But just for your info, Revosave actually offers one of the highest yield as far as anticipated endowment plan is concerned. Those offer by Manulife, UOB, HSBC etc are even worse. But I won't recommend anticipated endowments cos there's a better way to save.
Insurance companies make a lot of money on surrender of policy. Every year thousands of policies are surrendered.
To be frank, for many products in the market, it requires a lot of misrepresentations and cheating to close. But the unethical ones may get away with cheating for a short while, they will be caught soon. I believe in karma..
J.O
The discussion here is healthy with views from both sides though a bit out of point from original posting.
For J.O comment, you might have missed the sentence before I wrote that particular phrase. There are people who insisted that we should not sell a savings plan like Prusave or Prucash even when client insisted. I rather that this client be my client first, then to lose him or her.
Thats the point I want to bring across and I strongly feel that it is unfair to put label advisers as unethical just because he sold an endowment plan. Humans are complex and some people not in the industry may not know it.
The old lady at the bank was cheated this way. The bank consultant thought like you, "I better cheat her than leaving her to be cheated by another bank". If I don't do other people will do. This oft heard as excuses by unethical agents.
Your had revealed your dishonesty and I suggest that you close this blog! Don't pretend to be noble. Go and sell more revosave to the aunties and uncles in roadshows. You don't sell, others will. You are right. You are not competent.
Sell revosave never mind now they sell revosave and vivolife together.
You know the top agents from ntuc they all doing this.The poor aunties and uncles kena left right by them. They are behaving like the bank consultants and like them they think if you don't rob the uncles and aunties the bank will so rob them and make them buy revosave and bluff them as annuity and also use the cashbacks to buy vivolife. I heard the one who wrote to the ST forum was doing this ... Now a lot of people cursing her..she may land up at the 18 level hell to answer for cheating the old people of their retirement funds.
Adrian,
Using your fish example, what I would do is to display only the best fish (your 3rd fish). That is to say that I would only show the best products. In this way, none of my clients have a chance to know there are worst alternatives. Clients always make decisions based on the available recommendations. If the products are not shown, there is no problem with client insisting to choose the "worst" products.
The reason why clients engage our service is that they expect to be recommended the best.
What will happen if the client come to know about the "lousy" products from another adviser? I would tell the client to buy from the other adviser if the client insist to have that product. The other adviser deserves to earn the commission (since he was the one who showed the product) and as for me, I am not keen to earn a commission for selling a lousy product.
Mr. J.O.,you are right to say it requires misrepresentation, cheating and dishonesty to sell. In a selling situation the objective is outwit the client and make him buy.
Like those ntuc agents appearing in the ST newspaper and other agents they are all crooks and cheat and dishonest people.
Most people will know about savings through a traditional policy and many will have heard of cash-back plans. Its not a matter of whether we want to tell them about it sometimes.
It need skills and more effort to convince our clients on savings through the investment way because that is something more new to them and their impression of investment are risky and high chance of losing money.
From this posting, I'd identify my problem and I just need to be better to solve them. My problem, maybe also faced by many.
1) I fear losing the sales and hence not assertive enough. If I am firm enough, the client may wonder how come I'm so firm on it.
2) I may not have bring a across a message impactful enough to convince them the better way to save.
Thanks for all your comments.
i just wanted to say those ILP who are almost 100% invested are meant for investment and perhaps SA only 125% or 110% of premium paid, not one that give high coverage. don't try to mix up and be confused.
Premium allocation for regular ILP that don't give super high coverage are not something near this:
Eg:
Prudential Prulink - 15% / 50% / 50% for 1st 3 years
GE Maxlink - 10% / 60% / 90% for 1st 3
Adrian, so many comments flooding from all corners.
Not worth it at all. I think there are better jobs and careers to consider rather being in this line, when you do good, your not appreciated and when you do bad, you are condemn. And you can't make mistakes. I guess most of the comments coming from all angles seems to suggest that humans are perfect creatures. But infact we are not. Else why are we in this world suffering?
All this jargons used on policies are just exhausive. They are just like all the investments, trying to makes every cent out of you.
Hi Adrian,
I much appreciate your thoughts on this matter. The thing is that I've gotten myself into buying a prulink assurance policy, but have been feeling suckered ever since. It's into its 4th year so the 101% allocation rate is there, but it's another good 6 years before it ramps up to the 105% allocation rate. I'm undecided between stopping or continuing. I feel it's either I cut losses now or go all the way. Can I ask what's your take on this? It could also be interesting to share your thoughts on when's a good time for any investor to stop a policy if he/she has dissonance about it. Thanks much. Matt
I normally don't tell people to surrender their policy after 4 years though technically RSP is still better in term of savings and investment choices. Lower Bid-offer and no policy fee, etc.
The main cost are already taken off in the 1st 3 years. If the cost are already paid, then make good use of the YRT(Yearly Renewable Term) feature especially if you are relatively young.
YRT Premium below 45 yrs old should be quite good. Its good to pump up additional coverage using this policy if you are below 45.
This policy also have one other good points such as policy will not lapse if you forgot to pay premium unlike a term policy.
Hi Matt,
As a matter of fact, the 101% is no big deal. Prudential is charging you bid-ask spread of 5%, minus the so-called extra 1% allocation, you still pay 4% for that you know. Online portal like Poems or FSM is charging 1-2% for RSP you know. Financial adviser reps may also charge less than Pru. And there are monthly admin fees, insurance charges etc. The cover you get from PAA isn't free you know. Do you know that Prudential's charges for insurance are much higher compared to others. And other hidden charges such as higher fund management fees to be paid. Just an example, do you know that you need to pay extra 1% in terms of expense ratio for funds bought from Aviva vs buy directly from fund manager such as DBSAM? By going thru insurance company, you need to pay so much more. Add all these up, it's no wonder you get very very poor return. Also, why just limit your choice to just a few of Prudential Asset Mgt's funds?
Now, perhaps you want to decide whether to continue throwing good, hard-earned money into bad investmnent such as PAA. Mistake made, perhaps now is the time to cut and move on. Just be more discerned next time lor. :-)
J.O.
Hi Adrian
I am new to finance thingy. Just graduated and am looking into investment.
You Mention the following
An 20 yrs anticipated endowment plan gives around 3.2% p.a whereas a normal endowment plan gives around 4.1%p.a. I reckon a 0.5% to 1% p.a difference in yield.
How you get the 3.2% vs 4.1%?
I have met with agents from some companies. They told me that those endowment with cash back, you can don't take back the cash back and reinvest them with the company with a certain percentage returns. (Letting it roll, they call it)
Will this give me better than the 4.1% you mention above?
Hi June 25, 2008 9:03 AM
You Mention the following
Another thing good about holding it in the bank instead of Prucash is if you look at it from today's dollar point of view in fact saving in the bank is better and it is worth more.
Saving in the bank is better? Last Check, Fixed Deposit interest rate is about 1 - 2%. How can they do better than the endowment plan rate? Can you help to explain on that? Greatly Appreciated.
Cheers
I did mentioned about the yield, but the bank better comment is not by me, However, I can help answer for that guy who posted this.
Let me answer your yield issue first.
Cash-back plan with 3.2% p.a yield over 20 yrs is assumed that all cash-back are re-invested into the plan. If the cash-back are taken out to spend, the eventual yield is probably just around 1.8% to 2% over the whole 20 years which include the money being taken out.
If you put the money in the bank, the interest rate may not stay at below 2% for the whole term of 20 years. Moreover, in the bank, you have full access of the cash. Isn't it better than the 1.8% where all your funds are locked up for 20 years?
You are paying for the liquidity, the difference in yield for such liquidity can be around 1%. 1% over 20 years compounded can be quite a sum too.
I suggest that you get adequate term insurance and invest the difference into a diversified portfolio of mutual funds. Monitor and rebalance them regularly. Investments, if properly done had historically over many decades, proven to give better returns averaging 6-8% p.a
I hope you will not get yourself into regular premium ILPs and Anticipated Endowment plans unless you have pressing reasons why you need to do it. You have not started your financial plan, get it right from day 1.
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